Monday, March 4, 2013

March 2013 Gloom Boom Doom- Asset deflation worries

The March 2013 Monthly Market Commentary (MMC) was published on the MMC subscribers only section and emailed on 1-Mar-2013.

"I do not believe in a deflationary Collapse but I am afraid of it"

I worry about the time when the current asset inflation will give way to a serious asset deflation, which will inevitably happen sometime in the future. As an observer of markets I am, therefore, concerned that the decline in gold prices could be telling us that we are about to enter a period of asset deflation.

I should like to make two points very clear. I am not sure when the asset deflation will start. Most likely, different asset classes will deflate at different times and with different intensity. The second point I wanted to make is the following. In a deflationary environment (whenever it will happen), financial assets (stocks, government and corporate bonds especially high yield bonds) would likely be the most vulnerable assets. In fact, in a deflationary collapse, I would envision money to flow into a sound currency and move out of “funny” paper monies. Therefore, I continue recommending the gradual accumulation of physical gold.

Similarly, most societies die because of their ill-conceived fiscal and monetary policies, and not because of their economic problems.